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Thursday, 26 May 16
GIANT ORE CARRIERS SET TO PLAY A BIGGER ROLE IN THE GLOBAL SHIPPING FLEET: CHINA EMBRACES VALEMAXES - RICHARD SCOTT
 Another phase of the giant ships era is approaching. Chinese shipowners placed orders recently for 30 huge ‘valemax’ ore carriers. These vessels, with a 400,000 deadweight tonnes capacity, are the largest carrying dry bulk commodities. When the ships are delivered in 2018 and 2019, a smooth introduction into the China iron ore imports trade is likely, contrasting with the experience of their predecessors.
The new tonnage will join an existing fleet of 34 similar valemax VLOCs (very large ore carriers) built in the past few years, operated by shipowners in several countries. Originally the class was named ‘chinamax’, reflecting the intended destination for most of the iron ore cargoes carried by these ships, supplied from Brazil. A name change to valemax was decided by Brazilian mining company Vale, which developed the concept, when discharging at Chinese ports was blocked, a severe setback. But this difficulty was eventually resolved.
A new bulk carrier class emerges
An unusually long boom in the dry bulk freight market, over several years up to mid-2008, provided motivation for the valemax concept gestation period. High and volatile freight rates for all dry commodities on international routes were experienced. These elevated rates were especially notable in the size group of vessels widely employed within the global iron ore and some other commodity trades, ‘capesize’ ships carrying about 180,000 dwt tonnes.
China had become, since 2003, the world’s largest iron ore importer and annual volumes continued growing rapidly. As a key supplier, Brazil focused on this market with substantial growth potential. Among alternative suppliers, competition with Australia is particularly intense. Australian miners have a big transportation cost advantage when exporting to Asian destinations: a much shorter distance compared with Brazil. The distance to Chinese ports from Western Australia is one-third of that from Brazil to China, resulting in much lower freight rates
Vale’s strategy to improve its competitiveness was massive capital investment in shipping capacity. A new class of many and far larger vessels, under the mining company’s full control, was designed to exploit economies of scale, with the aim of greatly lowering transportation unit costs. Exposure to the heights and variations of the global ocean freight market, and reliance on independent shipowners operating in that market, would be hugely reduced, making the delivered cost of Brazilian iron ore more attractive.
In mid-2008 the strategy profile became clearer. An order for a series of twelve new valemax 400,000 dwt ore carriers was placed at a Chinese shipbuilding yard, and further newbuilding orders followed for similar ships. Also, long-term 20-25 years transportation contracts were agreed by Vale with several independent shipowners based in other countries who, in turn, placed orders for new similar vessels to service the contracts.
An especially notable agreement was made with South Korean shipowners STX Pan Ocean. Reportedly the world’s largest contract of affreightment, valued at $5.8 billion, it covered 300 million tonnes of iron ore from Brazil to China over 25 years, requiring eight valemaxes each carrying an average 12m annually.
The current fleet
Valemax ships are the leviathans of dry bulk shipping, more than twice as big as capesize bulk carriers, typical vessels in the large capacity category. Dimensions of valemaxes are: length 360 metres, beam (width) 65 metres, draft (depth below waterline) 23 metres. The hull is divided into seven cargo holds and productivity is enhanced by ability to be loaded very rapidly. Previous the record holder was a 365,000 dwt ore carrier built thirty years ago and still trading today.
A remarkably large number of valemaxes, 35 in total, was ordered by Vale and its three shipowner partners – STX Pan Ocean, Oman Shipping and Berge Bulk – in this round. Most orders were obtained by shipyards in China, accompanied by some placed in South Korea. Deliveries began in early 2011, and the majority had been completed by the end of 2013.
The table below shows the year of delivery from builders and current owners. One vessel is still under construction, so the present total is 34. Vale originally owned 19, more than half the total. During the past twelve months, Vale sold 12 ships to Chinese operators (China VLOC, China Ore Shipping and ICBC Leasing) following earlier leasing of four ships to another Chinese owner, Shandong Shipping.
Valemaxes are not the only VLOCs operating in the Brazil iron ore export trades. A large number of other big ore carriers is regularly employed. Many of these ships were originally built as tankers to carry crude oil, and were converted to ore carriers.
Calculations based on a snapshot view of recent (early May 2016) employment revealed that, excluding the valemaxes, 69 ships of 240,000 dwt and larger were involved in Vale iron ore export trades to China and numerous other destinations. All except one were actually in a range of 247,000 to 327,000 dwt. Converted former tankers numbered 32, almost half the total number, mainly 260,000 to 300,000 dwt, built in the 1990-1995 period and converted between 2008 and 2011.
Trading patterns
Generally, the maxim applicable is that the larger the ship, the more restricted the trading pattern. This basic feature applies to most ship types. Typically there are two constraints: port and berth dimensions and cargo handling facilities (including storage) at loading and discharging ports, and the volume and regularity of cargo flows. Canal restrictions are sometimes another limitation. Valemax 400,000 dwt ore carriers are restricted to a small number of trade routes.
The original rationale for valemax size vessels focused on employment in carrying massive and growing iron ore imports into China. When the current ships were ordered, China was already the dominant iron ore importer, receiving 444 million tonnes in 2008, a 53 percent share of global seaborne iron ore trade, of which Brazil supplied 101mt (23 percent).
Today’s volumes are much higher. China’s total imports reached 953mt in 2015, a 70 percent share of world seaborne iron ore trade. Brazil supplied 192mt, a smaller 20 percent proportion of the China import market, but the actual volume was almost double that seen seven years earlier. The current valemax fleet theoretically could carry about one-quarter of the trade from Brazil to China annually, over 53mt (assuming each vessel completed four trips). Consequently, there is ample potential employment. Moreover, some vessels participate in other trades.
Since valemax ore carriers were introduced, iron ore cargoes from Ponta da Madeira, Tubarao and Guaiba in Brazil carried by these vessels have been received in a number of countries around the world as well as China. Discharge ports include Taranto (Italy), Rotterdam (Netherlands), Sohar (Oman), Oita, Kimitsu and Kashima (Japan), Gwangyang and Dangjin (South Korea), Villanueva (Philippines) and Subic Bay (Philippines). An entirely new port terminal at Teluk Rubiah (Malaysia) started receiving shipments in early 2014.
Delayed role in China’s imports
During the period of almost four years following the introduction of valemaxes in 2011, only a small number of these ships were given permission to discharge in Chinese ports and the cargoes were less than full shiploads. Eventually, in early 2015, problems which had prevented extensive valemax participation in this trade were resolved.
How did the unanticipated prolonged delay in gaining access to Chinese ports occur? Before the first valemax was delivered from the shipbuilders in May 2011, opposition from China was intensifying. Later in that year, the China Shipowners Association expressed their view that employing valemaxes in this trade was monopolistic and represented unfair competition. Concern about port safety also was expressed. In January 2012, the Chinese government announced a formal ban on these vessels using Chinese ports. The competition issue seems to have been the main influence.
Long before the official ban, amid mounting opposition from the Chinese government to the original strategy, Vale had disclosed in October 2010 a modified plan involving transshipments. This plan featured valemaxes carrying iron ore to a port where cargoes could be offloaded into smaller ships acceptable at all final destinations. The regional distribution centre at Teluk Rubiah, Malaysia was designed. A further centre in the Middle East area at Sohar, Oman was planned.
Valemax size shipments started arriving at Sohar in September 2011, with full operations beginning in the following March. Arrangements were made also for another transshipment facility, a floating terminal at Subic Bay, Philippines, where valemax size cargoes could be transferred offshore to smaller bulk carriers. This became operational in February 2012, when the world’s largest dry bulk floating storage vessel (a converted tanker) arrived, and a second floating terminal was added in the next year. The land based distribution hub at Teluk Rubiah began receiving cargoes in early 2014, fully opening later in that year.
Foreshadowing an end to the dispute as opposition from China’s shipowners gradually receded, Chinese shipowning company Shandong Shipping leased four valemaxes from Vale towards the end of 2013. This progress was followed In September 2014 by Cosco signing a provisional cooperation agreement to buy from Vale, and charter back on long term 25-year charters, four vessels of this type. Another provisional contract with China Merchants Group was also agreed.
Eventually, early in 2015, China’s objections were removed and the ban was lifted. Later, several ports were officially permitted to receive the vessels – Dalian, Qingdao, Tangshan and Ningbo-Zhoushan. The first recorded full valemax cargo of iron ore, from Brazil, was received at Dongjiakou (Qingdao) at the end of July 2015.
In the past twelve months, since the lifting of the ban, China has firmly embraced the giant ore carrier concept. Three major purchases from Vale were finalised. In May 2015 Cosco bought four valemaxes for $445 million, for operation by China Ore Shipping (a new company 51 percent owned by Cosco and 49 percent by China Shipping Group, preceding the merger of the two holding companies). Soon after, in July, China Merchants Energy Shipping bought four valemaxes for $448m and set up a new operating subsidiary, China VLOC. Finally, in December, Industrial and Commercial Bank of China’s ICBC Leasing subsidiary purchased a further four ships for $423m.
What has the valemax strategy achieved?
When Vale’s original strategy became known, it was soon clear that it was industrial bulk shipping on a vast scale, one of the biggest arrangements of its type ever seen in the dry bulk sector. Given the enormous scale of capital investment involved, it is arguable that advantages for the mining company have been modest so far, mostly reflecting a shipping market environment evolving very differently to what was envisaged at the outset.
Varying conditions ranging from subdued to depressed have prevailed, in the dry bulk freight market, during much of the past five years since valemaxes started operating. Low open market rates over a long period diminished the economic justification for mega-size ships, greatly reducing envisaged savings in iron ore transport costs. The differential between freight rates from Brazil and the main export competitor, Australia was compressed, removing more benefit. However, some advantage has been gained by avoiding brief spikes in capesize rates.
Accompanying these general market aspects related to valemax employment, an inability to access Chinese ports regularly with fully-loaded ships for several years was a huge setback. Although a workable alternative plan was quickly put in place, featuring transshipment at various locations, it involved significant extra costs. These additional expenses partly offset gains from lower unit costs of transportation resulting from economies of scale.
Nevertheless there are still, potentially, benefits to be gained in the future over the remaining lifespan of the existing ships, two decades or more. A balanced view will be possible only much later during this period. If another long dry bulk freight market boom occurred, unlikely though that may seem based on present signs, the valemax strategy could prove to have been extraordinarily sound and far-sighted.
A contrasting approach by Vale’s principal competitors in the international iron ore market has been seen. Rio Tinto and BHP Billiton have adopted different strategies. Although Rio Tinto has invested in ore carriers to some extent, these are not the mega-size ships. BHP Billiton has remained focused mainly upon using the open freight market.
Future fleet enlargement
Underlining potential future advantages are plans, recently announced, to almost double the size of the present valemax fleet. This expansion presumably has been informed by performance already experienced, and probably reflects expectations of a fairly subdued freight market evolution in many of the years ahead.
During the past few months it was confirmed that three Chinese shipowners have placed orders with shipbuilders in China for 30 valemaxes to be delivered in 2018 and 2019, as shown in the table below. Reports indicate that Vale is chartering all the ships on long 27 years contracts of affreightment.
Although these orders have added to anxiety about future global bulk carrier fleet expansion, it seems clear that a large proportion of the new capacity is effectively replacement tonnage. Many vessels Vale is currently using, VLOCs converted from tankers, probably will reach or approach their life-cycle end by 2020 or earlier. Among these, numerous ships were built in the years up to 1993, and so will be twenty five or more years old by 2018.
The new valemaxes will assist in providing iron ore transportation on the Brazil to China route at the most economical cost. Enhanced competitiveness with other iron ore suppliers, especially Australia is likely to result. Another aspect is that full possession of the vessels by China-owned shipping companies is consistent with the national strategic aim to carry a higher proportion of the country’s trade in domestically-owned ships.
Article by Richard Scott, visiting lecturer, London universities & MD, Bulk Shipping Analysis | Hellenic Shipping News
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Wednesday, 30 March 16
MINISTRY OF ENERGY AND MINERAL RESOURCES OF INDONESIA TO REVISE METHODOLOGY TO DETERMINE THE SELLING PRICE OF COAL TO MINE-MOUTH POWER PLANTS
COALspot.com: Ministry of Energy and Mineral Resources (ESDM) of Indonesia to review to revise methodology to determine the selling price of co ...
Wednesday, 30 March 16
VALEMAXES: THE BIGGEST NIGHTMARE OF TODAY'S DRY BULK MARKET - INTERMODAL
At a time that Europe is still dealing with the aftermath of the terrorist attacks in Brussels our society is daily bombarded with news of terroris ...
Tuesday, 29 March 16
BULK CARRIER VENTILATION - CAPTAIN PAUL R. WALTON
KNOWLEDGE TO ELEVATE
Moisture damage is a source of many cargo claims. Claimants allege that it is brought about by the ship’s failure t ...
Monday, 28 March 16
INDONESIAN WEEKLY CS50 COAL INDEX CLOSED SLIGHTLY FIRM; CS 57 INDEX CLOSED WEAK
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.03 percent week over week to averaging $38.91 per ton on this past Thursday, ...
Monday, 28 March 16
THE SUPRAMAX INDEX WAS UP TWENTY-FOUR POINTS TO 473 POINTS
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued to rose this week.
The freight market was ...
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- Altura Mining Limited, Indonesia
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- Grasim Industreis Ltd - India
- Petron Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Trasteel International SA, Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- PetroVietnam Power Coal Import and Supply Company
- VISA Power Limited - India
- Uttam Galva Steels Limited - India
- Sarangani Energy Corporation, Philippines
- ICICI Bank Limited - India
- ASAPP Information Group - India
- IHS Mccloskey Coal Group - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Intertek Mineral Services - Indonesia
- Sical Logistics Limited - India
- Ministry of Transport, Egypt
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- Krishnapatnam Port Company Ltd. - India
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Mintek Dendrill Indonesia
- Agrawal Coal Company - India
- Minerals Council of Australia
- Parry Sugars Refinery, India
- Pipit Mutiara Jaya. PT, Indonesia
- SN Aboitiz Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
- Africa Commodities Group - South Africa
- Sree Jayajothi Cements Limited - India
- Billiton Holdings Pty Ltd - Australia
- Indonesian Coal Mining Association
- CIMB Investment Bank - Malaysia
- Mercuria Energy - Indonesia
- Dalmia Cement Bharat India
- Bukit Makmur.PT - Indonesia
- Thiess Contractors Indonesia
- Global Coal Blending Company Limited - Australia
- Ambuja Cements Ltd - India
- Vedanta Resources Plc - India
- Carbofer General Trading SA - India
- Commonwealth Bank - Australia
- Eastern Coal Council - USA
- Malabar Cements Ltd - India
- Maheswari Brothers Coal Limited - India
- Central Java Power - Indonesia
- PTC India Limited - India
- Indo Tambangraya Megah - Indonesia
- Deloitte Consulting - India
- Indika Energy - Indonesia
- White Energy Company Limited
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Chettinad Cement Corporation Ltd - India
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- Therma Luzon, Inc, Philippines
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- Star Paper Mills Limited - India
- Riau Bara Harum - Indonesia
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- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- Medco Energi Mining Internasional
- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- London Commodity Brokers - England
- Neyveli Lignite Corporation Ltd, - India
- Karbindo Abesyapradhi - Indoneisa
- Power Finance Corporation Ltd., India
- The Treasury - Australian Government
- Bank of Tokyo Mitsubishi UFJ Ltd
- Attock Cement Pakistan Limited
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- CNBM International Corporation - China
- Bhatia International Limited - India
- Formosa Plastics Group - Taiwan
- South Luzon Thermal Energy Corporation
- Indian Energy Exchange, India
- Directorate General of MIneral and Coal - Indonesia
- Indian Oil Corporation Limited
- Semirara Mining Corp, Philippines
- Baramulti Group, Indonesia
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- Energy Link Ltd, New Zealand
- Price Waterhouse Coopers - Russia
- GN Power Mariveles Coal Plant, Philippines
- Metalloyd Limited - United Kingdom
- Kepco SPC Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Orica Australia Pty. Ltd.
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- Bukit Asam (Persero) Tbk - Indonesia
- Madhucon Powers Ltd - India
- International Coal Ventures Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Ceylon Electricity Board - Sri Lanka
- Kalimantan Lumbung Energi - Indonesia
- Marubeni Corporation - India
- MS Steel International - UAE
- Meralco Power Generation, Philippines
- Siam City Cement PLC, Thailand
- Wilmar Investment Holdings
- PowerSource Philippines DevCo
- Gujarat Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Electricity Generating Authority of Thailand
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- GMR Energy Limited - India
- Central Electricity Authority - India
- Barasentosa Lestari - Indonesia
- Mercator Lines Limited - India
- Simpson Spence & Young - Indonesia
- Sindya Power Generating Company Private Ltd
- Kumho Petrochemical, South Korea
- Coal and Oil Company - UAE
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- Energy Development Corp, Philippines
- Oldendorff Carriers - Singapore
- Thai Mozambique Logistica
- Kaltim Prima Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Port Waratah Coal Services - Australia
- Australian Commodity Traders Exchange
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- Kobexindo Tractors - Indoneisa
- San Jose City I Power Corp, Philippines
- Videocon Industries ltd - India
- McConnell Dowell - Australia
- Gujarat Mineral Development Corp Ltd - India
- Bangladesh Power Developement Board
- European Bulk Services B.V. - Netherlands
- Coastal Gujarat Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Singapore Mercantile Exchange
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Makarim & Taira - Indonesia
- India Bulls Power Limited - India
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Sojitz Corporation - Japan
- AsiaOL BioFuels Corp., Philippines
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Salva Resources Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GVK Power & Infra Limited - India
- Goldman Sachs - Singapore
- Heidelberg Cement - Germany
- Orica Mining Services - Indonesia
- GAC Shipping (India) Pvt Ltd
- Borneo Indobara - Indonesia
- Tata Chemicals Ltd - India
- Aditya Birla Group - India
- Merrill Lynch Commodities Europe
- Indogreen Group - Indonesia
- Bhoruka Overseas - Indonesia
- Global Green Power PLC Corporation, Philippines
- IEA Clean Coal Centre - UK
- Iligan Light & Power Inc, Philippines
- Mjunction Services Limited - India
- Parliament of New Zealand
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Kideco Jaya Agung - Indonesia
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bulk Trading Sa - Switzerland
- Electricity Authority, New Zealand
- Siam City Cement - Thailand
- Globalindo Alam Lestari - Indonesia
- SMG Consultants - Indonesia
- LBH Netherlands Bv - Netherlands
- Karaikal Port Pvt Ltd - India
- Anglo American - United Kingdom
- Economic Council, Georgia
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Interocean Group of Companies - India
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- Aboitiz Power Corporation - Philippines
- Xindia Steels Limited - India
- Cement Manufacturers Association - India
- Georgia Ports Authority, United States
- Ministry of Mines - Canada
- Cigading International Bulk Terminal - Indonesia
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